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Brokers' Digest 922

The Edge Singapore
The Edge Singapore • 10 min read
Brokers' Digest 922
Wilmar International Price targets: $4.77 BUY (RHB Group Research) $4.58 ADD (CGS-CIMB Research) $5.00 UPGRADE OVERWEIGHT (Morgan Stanley Research) $4.60 BUY (UOB Kay Hian Research) $4.37 HOLD (Maybank Kim Eng Research) $4.60 BUY (DBS Group Researc
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Wilmar International
Price targets:
$4.77 BUY (RHB Group Research)
$4.58 ADD (CGS-CIMB Research)
$5.00 UPGRADE OVERWEIGHT (Morgan Stanley Research)
$4.60 BUY (UOB Kay Hian Research)
$4.37 HOLD (Maybank Kim Eng Research)
$4.60 BUY (DBS Group Research)
$4.80 OUTPERFORM (Credit Suisse Research)
$5.00 OVERWEIGHT (JPMorgan Research)

The ongoing Covid-19 virus outbreak has posed challenges for companies in almost all industries, but analysts are keeping their “buy” recommendations on Wilmar International as the group appears to be in a strong place for the long term.

For 4QFY2019 ended December, the group booked earnings of US$438.4 million ($613.7 million), some 120% higher than earnings of US$199.4 million a year ago. This brought full-year earnings to US$1.3 billion, some 15% higher than FY2018 earnings of US$1.1 billion. This has outperformed analysts’ forecasts, coming in at 8% and 3% higher than the estimated figures by CGS-CIMB Research and RHB Group Research.

Both brokerages have attributed the better-than-expected earnings to the group’s tropical oil segment, on the back of better merchandising and processing margins.

“We expect the tropical oils to earn supernormal margins in the short term as its plantation unit continues to benefit from rising CPO [crude palm oil] prices, while its merchandising and downstream activities still delivered solid performance on strong demand and lowcost stocks,” said RHB analyst Juliana Cai in a Feb 21 report.

Wilmar has also proposed a final, tax-exempt, one-tier dividend of 9.5 cents per share, bringing its total dividend for FY2019 to 12.5 cents – the highest cash dividend declared by the group since its listing.

The group is also forging ahead with the China listing of its China subsidiary, Yihai Kerry Arawana Holdings. On its outlook, Wilmar CEO Kuok Khoon Hong says that although a slight delay can be expected on the back of the virus outbreak, the group expects the listing to be approved in FY2020.

The way CGS-CIMB lead analyst Ivy Ng sees it, Wilmar remains a favourite on both its attractive valuations and the planned listing, despite the potential short-term challenges for the group’s China operations. — By Uma Devi

APAC Realty
Price targets:
61 cents ADD (CGS-CIMB Research)
60 cents BUY (RHB Group Research)
55 cents ACCUMULATE (UOB Kay Hian Research)
52 cents HOLD (DBS Group Research)

APAC Realty is banking on improvements in both the primary and HDB resale markets as the 2018 property cooling measures continue to take a toll on home buyer interest and overall market interest.

The real estate agency saw its earnings for 4QFY2019 ended December increase 33.3% to $5.5 million from $4.1 million in the corresponding quarter last year. However, the group’s fullyear earnings fell 42.2% to $14.0 million.

In a Feb 25 report, RHB analyst Vijay Natarajan said that the group is “holding up” despite lower overall consumer sentiment due to the Covid-19 outbreak. The recent launches of Parc Canberra and The M Condo saw strong responses, with more than 300 units sold at each project.

“Our base case assumption is that impact, if any, from Covid-19 would be short-term in nature. We continue to expect recovery in both primary and secondary volumes,” says Natarajan. APAC Realty has also been expanding regionally to countries such as Thailand and Malaysia, in a bid to expand its network and secure a greater volume of marketing appointments. As at Jan 1, the group has amassed 7,048 agents, with 25 projects slated to be launched this year.

In report dated Feb 24, CGS-CIMB Research analyst Lock Mun Yee said that the group’s overseas operations will “continue to gather momentum” from FY2020 onwards.

DBS Group Research analyst Ling Lee Keng agrees. “A larger agent force should help to generate more sales, which would in turn boost the performance of the group,” she said in a Feb 25 report.

Although Ling is expecting the whole residential market to grow by some 5% in FY2020 and FY2021 following a 10% decline in FY2019, she is less optimistic on the take-up rate for new launches, as well as transactions in the resale market. — By Samantha Chiew

Penguin International
Price targets:
82 cents ADD (CGS-CIMB Research)
85 cents BUY (UOB Kay Hian Research)

CGS-CIMB Research remains optimistic on Penguin International following a positive set of results for FY2019 ended December, keeping a “add” call on the stock with a higher target price of 82 cents, which represents an upside of 21%.

Although the group reported a 24.7% drop in earnings for 4QFY2019 ended December to $5.5 million due to a decline in revenue, earnings for the year booked an increase of 42.9% to $19.4 million.

The group reported that the rise in full-year earnings was due mainly to an increase in the number of stock vessels sold year-on-year, as well as a growing fleet of owned-and-operated crewboats that are enjoying improved utilisation and charter rates.

According to CGS-CIMB analyst Cezzane See, the group is seeing continued demand across its segments, including crew transfer vessels for offshore wind, armoured security vessels for maritime protection, crewboats for oil and gas personnel transfers, as well as passenger ferries for tourism and public transport.

“We like [Penguin International] as it is increasingly profitable, cheap versus domestic peers and still in a net cash position (which will accord it dry powder to shore up its build-to-stock inventory),”

See said in a note dated Feb 25. See says that the group is also continuing its fleet renewal programme, and adding new crewboats to its operating fleet on the back of a pickup in chartering activities.

The brokerage has raised its EPS forecasts for FY2020 and FY2021 by 6.97% and 7.28%, respectively, on the back of higher shipbuilding revenue. It also forecasts the group’s EPS to grow by some 4% in FY2022. — By Jeffrey Tan

Sheng Siong Group
Price targets:
$1.41 ACCUMULATE (Phillip Securities)
$1.40 OUTPERFORM (KGI Securities)
$1.42 BUY (RHB Group Research)
$1.32 HOLD (UOB Kay Hian Research)
$1.45 BUY (DBS Group Research)
$1.42 ADD (CGS-CIMB Research)

Phillip Securities is maintaining its “accumulate” recommendation on Sheng Siong Group, and has raised its target price to $1.41 from the previous $1.32, as it awaits a recovery in sales and revenue for the group.

The group reported full-year earnings of $75.7 million for FY2019 ended December, some 7.0% higher than FY2018 earnings of $70.8 million. The increase came despite earnings for 4QFY2019 dipping 0.8% to $17.4 million, from $17.5 million a year ago.

In its earnings call, the group said that its store expansion plan was “progressing well”. With seven new stores opened since the start of FY2019, the group’s total store count now stands at 61.

“Moving ahead, we will stay focused on looking for new retail spaces, especially in areas where our potential customers reside, with an aim in mind to expand our retail network in Singapore,” says CEO Lim Hock Chee.

The way Phillip Securities analyst Paul Chew sees it, the group’s sales figures are set to be boosted in FY2020 on the back of the new stores. “There has been a noticeable improvement in consumer sentiment since 4Q19. This should lead to robust Chinese New Year sales in 1QFY2020,” he says.

Apart from store expansion, Chew notes that the group has multiple growth drivers in the year ahead, including operating leverage, rebound in revenue per sq ft and recovery in consumer sentiment. In addition, Sheng Siong is set to benefit from the recent Budget 2020, as well as the Covid-19 outbreak.

“Another repercussion of the outbreak was the avoidance of public areas and shift towards eating at home and home-cooked meals,” says Chew.

“SSG [Sheng Siong] could benefit from the recent amendments to the 2020 budget, which includes more than $1 million in benefits through the 8% wage subsidy and half-month HDB rental rebate,” he adds. — By Samantha Chiew

Raffles Medical Group
Price targets:
96 cents NEUTRAL (RHB Group Research)
$1.10 HOLD (DBS Group Research)
96 cents NEUTRAL (Phillip Securities)
$1.06 HOLD (Maybank Kim Eng Research)
$1.21 BUY (UOB Kay Hian Research)
$1.05 NEUTRAL (Goldman Sachs Research)
$1.09 NEUTRAL (Credit Suisse Research)
$1.16 ADD (CGS-CIMB Research)
$1.10 OUTPERFORM (Daiwa Securities)

Analysts are expecting Raffles Medical Group’s near-term operations to be impacted by the Covid-19 outbreak, as Singapore’s private healthcare sector is expected to take a hit from the deferment of elective procedures, and patients flocking to public hospitals as a cheaper alternative.

For FY2019 ended December, the group saw its earnings fall 15.2% to $60.3 million from $71.1 million in the previous year. Operating expenses for the year also increased by 16.6% to $34.7 million, on the back of start-up costs incurred from the opening of Raffles Hospital Chongqing in January 2019.

Maybank Kim Eng Research, DBS Group Research and RHB Group Research are keeping their “hold” calls on the stock, and are expecting a decline in earnings for FY2020.

Using the 2003 SARS outbreak as a guide, Maybank analyst Lai Gene Lih assumes that Raffles Medical has two quarters of negative impact ahead, adding that the group’s management has estimated this to drag revenue by about 6 percentage points.

“The negative impact will likely be in the form of lower volumes for elective surgeries, and/or foreign patients. However, these may be partially mitigated by expanded border screening (eg, at airports), and tele-consultations,” said Lai in a Feb 24 report.

RHB analyst Juliana Cai expects the group to book year-on-year revenue declines of 5% in FY2020, with revenue from China declining 10% from the previous year. “We believe this will be partially offset by the increase in insurance contracts, the maturing of Raffles Hospital Chongqing, as well as the opening of Raffles Hospital Shanghai in 2HFY2020, when the virus outbreak subsides,” she wrote in a Feb 25 report.

However, DBS analyst Rachel Tan believes that the declines have already been factored into the group’s current share price and earnings estimates, adding that the healthcare sector is likely to remain resilient over this period. —By Amala Balakrishner

UMS Holdings
Price targets:
$1.12 BUY (DBS Group Research)
$1.08 UPGRADE ADD (CGS-CIMB Research)
$1.13 BUY (Maybank Kim Eng Research)

Although the Covid-19 outbreak has caused disruption in the operations of many electronics manufacturers, UMS Holdings is seen to be able to brave the storm.

For 4QFY2019 ended December, UMS reported earnings of $9.2 million, some 4% lower than the earnings of $9.4 million a year ago. The 56% surge in revenue to $40.4 million was insufficient in combating the fall in the group’s overall gross material margins to 51.1% from 60.9% last year. As a result, full-year earnings fell 22% to $33.2 million.

The fall in margins was due to a shift in product mix which saw a higher concentration in semiconductor system integrated sales. This had resulted in lower margins compared to the previous year’s mix, which had a higher concentration of component sales.

But analysts remain bullish on the stock, citing it to be poised to thrive on an industry turnaround.

“Our thesis that UMS is a beneficiary of the upswing in semiconductor capex, which is still in the early stages, appears to be playing out,” said Maybank Kim Eng Research analyst Lai Gene Lih in a Feb 25 report, adding that the group’s full-year dividend of four cents was a “pleasant surprise” and had surpassed the brokerage’s forecast of 3.5 cents.

“For 1QFY2020, a lack of certain components may delay deliveries for 1-2 weeks, but management remains confident of being able to catch up on deliveries by the end of March,” adds Lai.

With manufacturing facilities mainly in Malaysia, analysts opine that the group’s production is unlikely to be impacted by the virus, save for the inevitable supply chain disruptions, as well as manpower and logistical hurdles.

DBS Group Research analyst Ling Lee Keng says: “Assuming the situation does not worsen from now, production is expected to catch up by 1QFY2020. Overall, we are still positive on the recovery of the semiconductor industry, driven by new technologies and 5G.” — By Uma Devi

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